An important piece to financial well-being and success is maintaining a low level of debt. Ideally, it’s better if you carry no debt, especially revolving debt. Debt is a robber. It steals from your hard-earned income by adding interest to the cost of the things you buy.

It's not just the interest added to your payment that's the problem, it's the loss of that money and what it could have done for you. Interest works both ways. It can be taken from you or it can be added to you. When you choose to pay interest you’re giving up part of your future income, instead of using it to grow your own net worth and secure your future.

If you have debt I want to help you develop a plan to eliminate it once and for all. Eliminating debt is an important step toward lifelong financial success. Financial success can only happen if you set goals.

Goals are dreams we convert to plans and take action to fulfill.

— Zig Ziglar

A goal helps you to see what the end result looks like. It gives you both hope and direction. Having a goal means you always know where you're going, and you can easily identify the steps necessary to reach your destination. There’s no misstep you can’t recover from, and should you get sidetracked, you know how to correct your steps to get back on track.

The best way to ensure you reach your goal of getting out of debt is to get crystal clear about the result.

How will it feel to be debt free, to owe no one?

How will your life be different?

What will you do with the money freed up once your debt is paid off?

You must make this end result vivid. Give it color, smell, sight, and sound. In every way you possibly can visualize every aspect of being debt free. Make sure you write this down so you can refer to it daily.

Goals that are not written down are just wishes.

— Unknown

How to Get Out of Debt

You'll need four pieces of information and the Debt Pay Off Plan. This is a powerful tool that will help you create and implement an effective strategy for paying off all your debts.

After downloading the Debt Payoff Plan, enter the following in the top portion of the form:

Figure 1.1

Creditor name

Debt current balance

Minimum monthly payment

Interest rate charge

I recommend you list the debts in order from smallest to largest balance. You can also put them in order of largest to lowest interest rate. In theory, this will save you more money, but it’s not the best method to use. By placing the smaller balance debts first you'll be able to more quickly pay them off, giving you that sense of accomplishment and the affirmation that the plan is working. This method has proven to yield better results.

The Minimum Payment Trap

The reason credit card debt is so difficult and takes so long to pay off is due to what I call, 'the minimum payment trap.'

Here’s an example. Let’s say you owe $2,000 on a credit card at an 18.9% interest rate, which requires a 4% [of balance] minimum payment. If you only pay the minimum payment it will take you 8 years and 4 months to pay it off [Figure 1.2]. That’s because the minimum payment is based on the balance. As the balance decreases so does the minimum payment. This stretches out the payments over many years to provide the most profit to the credit card company.

Figure 1.2

By simply using the Debt Pay Off Plan and keeping your monthly payment the same amount, which in this example is $80 [Figure 1.3], the debt is paid off in just 32 months instead of 100 months. The interest is also reduced to just $562 from the $1160.83.

Figure 1.3

debt-snowball your debt payoff plan

What’s even more exciting is when you add an extra amount to the minimum payment. This is what’s commonly known as a debt snowball plan, included in the bottom section of the Debt Pay Off Plan form. Just like a snowball grows in size as you roll it in the snow, the amount of the debt payment grows every time you pay off a debt and add (roll down) that payment amount to the next debt on the list.

This increased payment makes paying off even large balances fast, while saving you a lot in interest. In the example below [Figure 1.4] the original $2,000 debt is now paid off in just 12.3 months by adding a $100 extra payment to the original payment.

The next debt on the list, which was originally $3,000 [see Figure 1.3] and would have taken 31.5 months to pay off, will now take only a 19.5 months to pay off. All this by adding an extra $100 and following the debt snowball plan.

Figure 1.4

The benefit of this plan is that it's easy to use. In this example, $300 is designated toward the Total Snowball Payments. The form shows the amount of each payment, highlighted in yellow. Chase is paid $180 per month and Bank of America gets $120. Once Chase is paid off, the $180 is added to the $120 and the payment for Bank of America becomes $300 [Figure 1.5]. With this larger payment Bank of America is paid off in 7 months.

Figure 1.5

I hope you can see the benefit of this tool and that you'll use it to get out of debt for good!